Customs duties on imported vehicles went into effect on Wednesday. The policy, said to promote investment and employment in the United States by President Trump, is expected to increase new car prices by thousands of dollars according to analysts.
The 25% duty applies to all vehicles assembled outside the United States. As of May 3rd, customs duties will also apply to imported auto parts, adding to the costs of automobiles and auto repairs.
There is a partial exemption for cars manufactured in Mexico or Canada under a free trade agreement. Automakers do not have to pay duties on parts like engines, transmissions, batteries, and other items that were made in the US and installed in cars at factories in Mexico or Canada.
This provision reduces the impact on vehicles such as Chevrolet Equinox electric vehicles assembled in Mexico but containing battery packs and other US-made components. General Motors only pays duties on some of the cars produced overseas.
Meanwhile, parts duties increase the costs of cars manufactured in states like Michigan, Tennessee, and Ohio where most vehicles contain components made overseas, often accounting for more than half the vehicle cost.
For example, around 90% of the value of some Mercedes-Benz cars made in Alabama comes from engines and transmissions imported from Europe, as per data from the National Highway Traffic Safety Administration.
The impact of tariffs on individual vehicles varies widely. Cars like the Tesla Model Y made in Texas and California or Honda Passports made in Alabama have a higher percentage of US-made parts and pay lower duties.
The highest tariffs apply to cars manufactured overseas, such as the Toyota Prius from Japan and Porsche sports cars from Germany.
Even those not purchasing a new car will feel the impact of tariffs as prices go up for parts like tires, brake pads, and oil filters.
Michael Holmes, co-director of Virginia Tire and Auto, a chain of auto repair and maintenance shops, mentioned that he and his suppliers initially plan to absorb most of the cost increase.
Holmes stated, “It’s not sustainable. It’s wishful thinking to expect companies not to pass on these costs.”
Analysts predict that car tariffs could also drive up prices of used cars in the long run. Increased demand for these vehicles may make new cars unaffordable for many buyers. Furthermore, repair costs may rise, leading to potential increases in insurance premiums.
Source: www.nytimes.com
